October 8

TSX heads lower as traders wonder if rally out of steam

TORONTO — The Toronto stock market was lower late-morning Wednesday as traders wondered if an impressive rally has run out of steam despite a strong reading on U.S. retail sales.The S&P/TSX composite index dropped 75.78 points to 12,802.8, led by falling telecom and energy stocks.The Canadian dollar was down 0.21 of a cent to 97.25 cents US.New York indexes were also lacklustre after the U.S. Commerce Department reported that February retail sales rose by 1.1%, the fastest pace in five months and much better than the 0.5% rise that economists had expected.The Dow Jones industrials shed 8.64 points to 14,441.42 after the blue chip index chalked up a sixth, straight record high close on Tuesday. The Nasdaq was up 0.08 of a point to 3,242.4 while the S&P 500 index edged up 0.26 of a point to 1,552.74.The solid increase in retail sales is encouraging because it shows that Americans kept spending despite a payroll tax increase that has lowered take-home pay this year for most workers.U.S. markets have been on a tear since the start of 2013 amid a positive run of fourth-quarter earnings news and data showing an improving housing sector and job gains.“One thing to add is we have seen earnings keep up with the market so although the markets have moved up, the valuation has not become stretched,” said Jeff Bradacs, portfolio manager at Manulife Asset Management.“And I think that is one area where investors see the market goes up a lot and think it’s getting more expensive but we’ve actually seen it kind of keep in line with earnings growth, which has been positive in the U.S.”The Dow industrials have jumped about 10% year to date. Buying enthusiasm has been muted in Canada but the TSX is still up about three%.Bradacs points out that the TSX is a different market than New York as it is heavily weighted by energy and gold companies.“And with golds, if you’re bullish on the economies out there, it’s tough to be bullish on gold unless you believe . . . (in) very stellar growth that is going to lead to higher inflation, which is difficult at this stage given the slack in the economy and high unemployment,” he said.“The other area is energy that’s holding back the TSX and that’s really just due to pricing differentials in Canada and that’s really holding back our energy space from moving forward.”The telecom sector led TSX decliners, down 1.16% as BCE Inc. (TSX:BCE) lost 68 cents to $46.75.The gold sector was down about one% while May bullion declined $3.70 to US$1,588 an ounce. Goldcorp Inc. (TSX:G) fell 56 cents to C$33.40.The April crude contract on the New York Mercantile Exchange gained 40 cents to US$92.94 a barrel. The energy sector was down 0.7% and Cenovus Energy (TSX:CVE) lost 30 cents to C$32.77.The base metals sector was down 0.75% with May copper a cent lower at US$3.54 a pound. Teck Resources (TSX:TCK.B) declined 61 cents to C$31.In corporate news, Air Canada (TSX:AC.B) was ahead eight cents to $2.65 after the federal government said Tuesday that it would give Air Canada more time to eliminate the $4.2-billion deficit in its pension plan. But it imposed strict rules on the airline that limit executive pay and prevent it from paying dividends.Printing and publishing company Transcontinental Inc. (TSX:TCL.A) turned around a loss from a year ago to post quarterly net earnings of $17.8 million or 23 cents a share. Adjusted earnings were $28.5 million or 37 cents per share, a penny short of estimates. Revenue for the quarter was also less than analysts expected at $528.7 million, although it was up 8.4% from a year earlier. Meanwhile, Transcontinental says it will pay a special dividend of $1 per share in the second quarter and its shares added 31 cents to $12.77.Construction company Aecon Group Inc. (TSX:ARE) stock was up 58 cents to $12.02 after it said it would raise its dividend to eight cents from seven cents effective April 1.The eurozone debt crisis focused investor attention Wednesday as Italy’s borrowing costs rose in the country’s first bond auction since ratings agency Fitch cut the government’s credit rating last week.Italy sold (euro)3.32 billion of two-year bonds at a yield of 2.48%, up from 2.30% in a mid-February sale. Demand weakened, with bids exceeding supply 1.28 times versus 1.37 in the February auction.European bourses were mixed in the wake of the U.S. retail data as London’s FTSE 100 index declined 0.7%, Frankfurt’s DAX added 0.03% and the Paris CAC 40 shed 0.16%. read more